Planning Merchandise

Assortments
Process of tradeoff Variety, Assortment and
backup stock is called assortment
planning

Assortment Plan – list of merchandise that

indicates in general terms what a retailer
wants to carry in a particular category.
 Merchandise Planning Is Done at
the Category Level
• Why?

• Category: group of products likely to have

similar demand patterns
Vendors, Promotions

• Category Management: (a) maximising

sales (b) maximising profits
 Merchandise Planning Is Done at
the Category Level
• Category Captain: favoured vendor to
manage the category
– Acess to all market & store information
– Vendors may take advantage
 Buying Organisation
• Merchandise Group - President
• Department – State Level
• Category Manager
• SKU
 Two Basic Considerations
• Must stock what the customer wants to
buy.

• Merchandise in stock must meet the profit

goal.
 Measures of Financial
Performance
• Overall corporate:
ROA = Net Profit X Net Sales
Net Sales Total Assets
• Merchandising Financial Performance
GMROI = Gross Margin X Net Sales
Net Sales Av. Inventory
[sales/stock ratio
-- not inv. Turnover} \
 GMROI
• Turnover effects
• Profit effects

• Return on Investment (ROI) viability

 Sales/Stock Ratio
GMROI = Gross Margin X Net Sales
Net Sales Av. Inventory

GMROI measures what you are making on each

dollar invested in inventory. Therefore, in this
ratio “Average Inventory” is measured in cost
dollars.
GM and Sales/Stock Different
for Different Products
 Buyer’s Dilemma
• Need to balance customer preferences/
shopping behaviors vs. profit goals

• Ex: Shopper's Stop decision to sell toys

Inventory Turnover
Net Sales
Average Inventory @ Retail

Cost of Goods Sold

Average Inventory @ Cost
 Inventory Turnover
Sales to Stock Ratio X (100 – Gross Margin
%)
Advantages of high InventoryT/O
• Increased sales volume
• Less risk of obsolence
• Improved salesperson morale
• More money for market opportunities
• Decreased Operating Expenses
• Increased Asset T/O
Disadvantages of high Inventory
T/O
• Lowered sales volume
• Increased cost of goods sold
• Increased operating expenses
 Sales/Stock vs. Inventory
Turnover
• Sales/Stock = Net Sales
Average Inventory at Cost
• Inventory Turnover = Net Sales
Av Inv at Retail
OR
= COGS
Av Inv at Cost
• All ratios use Average Inventory. WHY?
 Converting S/S to Inv Turnover
• Sales/Stock ratio X (100%-Gross margin
%)

• Really changing retail $ in “net sales” to

COGS (GM% + COGS% = 100%) SO
• Net Sales X (100% - GM%) = COGS
Av Inv at Av Inv at
Cost Cost
 GMROI Uses
• Evaluate departments
• Evaluate merchandise classifications
• Evaluate vendors
• Evaluate particular items
• EVALUATE BUYER’S PERFORMANCE
 Sales Forecasting
• Category Life Cycles
– Fad
– Fashion
– Staple
– Seasonal
 Fad Fashion Staple Seasonal

Sales over No Yes Yes Yes

saasons
Sales on a No No Yes Yes
specific
style over
many
seasons

Sales vary No Yes No Yes

from one
season to
next
 Developing a Sales Forcast
• Previous Sales Volume

• Published Sources – economic trends

• Customer Information – Want Book,

Customer Interviews (Focus Group)

• Shop Competition